BLOUGH v. STATE FARM FIRE CASUALTY COMPANY

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Court of Appeal, Fourth District, Division 2, California.

Robert BLOUGH, et al., Plaintiffs and Respondents, v. STATE FARM FIRE & CASUALTY COMPANY, et al., Defendants and Appellants.

No. E003250.

Decided: August 19, 1988

Portigal, Hammerton & Allen, Santa Ana, Horvitz, Levy & Amerian, Barry R. Levy and Stuart B. Esner, Encino, for defendants and appellants. Anderson, Parkinson, Weinberg & Miller and Thomas T. Anderson, Indio, DeGoff & Sherman and Victoria J. DeGoff, Berkeley, for plaintiffs and respondents.

OPINION

The appeal here is from an almost $10 million judgment, awarding both compensatory and exemplary damages in favor of two plaintiffs (initial and later joined) and against companion insurance companies, entered in a so-called bad-faith action in which the insurers were found by a jury to have breached both the implied covenant of good faith and fair dealing as well as those duties arising under section 790.03, subdivision (h) of the Insurance Code (unfair claims settlement practices).   These derelictions were found to have occurred in connection with the insurers' handling of the personal injury claim of the initial plaintiff here.   That claim had been the subject of an earlier third-party action filed against the later plaintiff here who was also the insurers' insured.   This insured later assigned his own so-called bad-faith claim to the third-party (traffic-collision victim) but, nevertheless, after the assignment, the insured assignor was permitted to join this action as a plaintiff, seeking his own emotional distress damages, allegedly arising also from the way the third-party claim had been handled by defendant insurers.

Reduced to its essentials, the extrinsic observable behavior of the insurance companies is not in dispute;  the alleged bad faith consisted of a delay for only three months in offering the third-party claimant, and initial plaintiff here, the policy limits of $100,000, after having offered $60,000 at the outset of settlement negotiations three months earlier.

After this delay in offering policy limits, which were then refused, the third-party plaintiff and the insured stipulated to a judgment for $1 million in the third-party action.   The stipulation was coupled with the third-party plaintiff's covenant not to execute.   Thereupon, as above noted, the insured assigned his own bad-faith claim against the insurers to the third-party plaintiff with whom he had just stipulated for judgment.   Soon thereafter, the action here was filed, attacking on two salients.   In his pleadings, the initial plaintiff asserted the assigned, common-law, bad-faith claim of his former adversary 1 as well as his own, allegedly arising under the Insurance Code, already noted, and as sanctioned by Royal Globe Ins. Co. v. Superior Court, 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329, in those instances where the injured party's action against the insured has been “concluded.”   A little less than two years after the action here was filed, the initial plaintiff was permitted to file a second amended complaint in which his assignor and former adversary in the traffic-collision suit was brought in by way of joinder as a plaintiff.   This later-joined plaintiff then succeeded, as did the initial plaintiff, in recovering an aggregate, seven-figure award for both compensatory and exemplary damages.

To particularize, the current action was brought initially by Robert Blough 2 (hereafter plaintiff or third party) against State Farm Fire & Casualty Company and State Farm Mutual Automobile Insurance Company (hereafter collectively, defendant or State Farm).

The initial complaint was in two counts.   The first alleged the assigned claim, related to the $1 million stipulated judgment;  the second charged violation of defendant's duties arising under the Insurance Code.   A Second Amended Complaint was filed about 19 months later.   Its purpose was to join Kenneth E. Turner, M.D., the insured, as a plaintiff, and contained the same two counts with little if any change in the charging allegations.   The prayer was for “Damages in the amount of $1,000,000.00 (One Million Dollars) which represents the amount of the Stipulated Judgment entered against Kenneth E. Turner and Tonya Turner in favor of Robert Blough as a result of defendants breach of duty of good faith and fair dealing by refusing to accept plaintiff's reasonable settlement demand,” plus both exemplary damages and “general damages for mental and emotional distress,” together with interest on all damages “in accordance with California Civil Code section 3291 and C.C.P. Section 998.”

The jury trial resulted in a verdict awarding the initial plaintiff Blough $2,502,000 in compensatory damages and $5,500,000 in punitive (exemplary) damages.   Otherwise, the verdict awarded the later-joined plaintiff Turner (insured) $1,750,000 in compensatory damages and $100,000 in exemplary damages.

Defendant has appealed from the judgment.   Because defendant breached no duty owed plaintiff Blough, and because defendant was not exposed to any further claim against it by plaintiff Turner after his assignment to Blough, the judgment will be reversed in its entirety with directions.

FACTS AND PROCEDURAL BACKGROUND

About 11 o'clock on a May evening in 1978, Tonya Turner was driving a Cadillac automobile north on Indian Avenue in Palm Springs.   When she started to make a left turn into Arenas Road from the second-to-left lane, not realizing that she was on a one-way street, she turned in front of and caused a collision with a Honda motorcycle operated by plaintiff, who was also travelling north in the lane next left of the lane in which Mrs. Turner was driving.   Plaintiff, who was 15, and his brother Scott, who was 14 and a passenger on the motorcycle at the time, were thrown to the road by the collision.   Plaintiff was hospitalized for about 10 days and was discharged with a diagnosis of head injury and cerebral concussion.  (He was not wearing a helmet at the time of the collision.)   Scott apparently received only minor injuries.

At the time of the collision, Turner was insured by defendant for a maximum of $100,000 for each person injured.   In addition, as a result of Turner's lease of the Cadillac from Las Vegas Auto Leasing, he was also covered for an additional $500,000 through a policy issued by American Star Insurance Company.   Turner notified defendant of the loss before the end of May 1978, and a claim file was opened by John Harrington (Harrington), one of defendant's divisional claims superintendents.   Harrington in turn retained an independent adjusting firm, J. Haggerty, to investigate both the circumstances of the collision and the extent of plaintiff's injuries.

Early in June of 1978, Haggerty filed his first report describing plaintiff's injuries as “multiple lacerations and head injuries” and suggesting that defendant set up a $2,500 reserve to service a possible claim.

Between June 1978 and February 1979 Haggerty made repeated attempts to obtain from plaintiff's counsel a detailed resumé of plaintiff's special damages.   These efforts were all unavailing, and with no prior communication at all with defendant's claims representatives, plaintiff and his brother Scott, through their mother as guardian ad litem, filed suit against Turner, alleging both personal injuries and property damage.

Finally on April 20, 1979, Harrington received a copy of summons and complaint.   Defendant accepted both defense and coverage and, after discharging the adjusting firm, hired Attorney Phil Sharp (Sharp) to defend the Turners.

Thereafter, Sharp obtained copies of plaintiff's medical records, and sent the copies for review to a neuropsychiatrist, Dr. Varga, and to a psychiatrist, Dr. Gericke.   Dr. Gericke also examined plaintiff on defendant's behalf.   At the examination, according to Dr. Gericke's report to Sharp, plaintiff said that after the collision he had dropped out of the tenth grade in high school because he had had headaches, dizziness, problems with memory, and had been unable to do the work;  that he had then obtained a construction job but had had trouble keeping jobs because of his uncontrollable temper;  that he had put holes in walls, had fought with his brothers, and had had difficulty in day-to-day living, and that doctors had prescribed Ritalin and Mellaril for him, but that he had not taken those drugs because he had not wanted to become lethargic or addicted to drugs.

Dr. Gericke's report also included a reference to a C.T. scan of plaintiff which had revealed abnormalities compatible with “communicating hydrocephelus” (obstruction to the flow of the fluid circulating through the brain), and an EEG report which had revealed abnormalities compatible with a structural lesion.   Dr. Gericke concluded, in his report, that plaintiff had a “post traumatic personality disorder,” and that phenothiazine drugs or a trial with Dilantin and phenobarbital “may” improve plaintiff's disposition and make it possible for him to hold a job.

After review of the foregoing reports and of plaintiff's medical records, Sharp sent his evaluation of the case to Harrington.   Such evaluation recited in relevant part:  “A C.T. head scan done by Dr. Steven Curtis revealed moderate enlargement of the intrahemispheric ventricle system.  [¶] An EEG ․ done two years after the accident was interpreted as being abnormal by Dr. Lapkin.  [¶] He felt the EEG was compatible with structural lesion ․ in the right posterior quadrant of the brain.  [¶] A psychological examination by Dr. Gerald Deskin in September of 1979 [16 months after the collision] revealed [plaintiff] had a low frustration tolerance and revealed him to be hostile, demanding, confused, and possibly disoriented.  [¶] Psychiatrist Dr. O.L. Gericke ․ felt [plaintiff] had suffered from post traumatic personality disorder as a consequence of the accident.”   Sharp, acting in the role of his representation of the insured, Turner, advised Harrington that plaintiff's case had a jury verdict range of $40,000 to $60,000.   On the basis of Sharp's report, Harrington set up a $60,000 reserve for plaintiff's claim.

About 6 months later, on April 1, 1983, the first settlement conference was held.   Up to that time plaintiff had made no demand.

At the settlement conference plaintiff was represented by Steven Weinberg, associated with the firm which is still representing plaintiff.   Turner was represented by Sharp and defendant by a staff claims adjuster, acting under the supervision of Harrington.   At this conference, plaintiff demanded defendant's policy limits of $100,000.   Defendant countered with an offer of $60,000.   Plaintiff refused the counteroffer.

At a second settlement conference on April 15, plaintiff again refused defendant's offer to settle for $60,000, and renewed its previous demand of $100,000.   Defendant in turn again refused plaintiff's demand.

As is customary, after the exchange of medical reports, and within a month or so after settlement conferences based thereon, plaintiff's counsel deposed Dr. Gericke, and Turner's counsel, Sharp, deposed Dr. Lapkin, who had previously interpreted plaintiff's C.T. scan, supra.   Sharp also deposed Dr. Tweedie, a psychologist who had examined plaintiff in early 1982.   Dr. Tweedie's report of that examination, which was inquired into at his deposition, and which neither Sharp nor defendant had obtained until after the two April settlement conferences, had recited that plaintiff had suffered brain injury leading to negative changes in intellect, judgment and emotional stability;  that the prognosis for plaintiff's educability was poor;  that there was little expectation of further improvement, and that plaintiff's behavior would deteriorate unless he were in a highly structured and supportive environment.

On July 8, 1983, an attorney from Sharp's office gave Harrington an evaluation of the depositions above noted, which included the new data provided by Dr. Tweedie.   At trial, Harrington testified it was only after he had studied the results of the depositions that he had concluded that plaintiff's case had a potential value of $500,000 to $600,000.

As a result of this conclusion, reached only after reviewing the evaluation of the depositions, Sharp, acting with defendant's authorization, on July 19, 1983, offered to settle the case for the policy limits of $100,000.   Plaintiff “refused” the offer, indicating that it too had revalued the case upward after the depositions.3

As a matter of procedure, Harrington followed the practice of delegating to retained counsel for defendant's insureds, in this instance, Sharp, the task of keeping them informed about the progress of the case.   In turn, as a matter of procedure, it was Sharp's practice not to report to insureds on the progress of settlement negotiations until it appeared that there could be a risk of exposure in excess of policy limits.

That point was reached in the case here after the settlement negotiations broke down on July 19, 1983, i.e., when Sharp had offered the $100,000 policy limits on behalf of Turner and plaintiff had “refused” the offer.   Accordingly, Sharp wrote a letter to the Turners on August 2, 1983, which recited in relevant part:

“The trial of your case will begin shortly after August 15, 1983․

“The purpose of this letter is also to advise you that State Farm has offered its policy limits of $100,000 to plaintiff Robert Blough which was refused.4

“There is a strong possibility that a verdict could exceed $100,000 in this case.

“If it does, under certain limited circumstances, you could be personally liable for the amount in excess of $100,000.

“I would suggest that you consult with an attorney of your choice to be paid for by you to advise you of your rights in this matter.

“Please telephone me collect at your earliest convenience.”

On August 3, 1983, at a further settlement conference involving plaintiff, Sharp, and American Star Insurance Company (American Star) 5 , plaintiff presented Sharp with alternative settlement offers.   The first was to settle the case for $600,000.   This amount would have consisted of defendant's $100,000 policy limits plus American Star's $500,000 policy limits.   American Star declined to participate.   The second settlement offer was then presented.   It was that Dr. and Mrs. Turner would agree to enter into a stipulated judgment against themselves in favor of plaintiff for $1,000,000, and then assign to plaintiff their (bad-faith) claims against defendant and against American Star, in exchange for plaintiff's agreement not to execute on the judgment.   Plaintiff then withdrew the first ($600,000) offer, pending Sharp's response to the second (stipulated judgment) offer.

On August 8, 1983, Sharp on behalf of the Turners, orally agreed to plaintiff's stipulated judgment offer.   In a confirming letter to plaintiff's attorney the following day, Sharp stated, in relevant part, that he had agreed to the offer “solely in [the Turners'] interests, without any thought to the interests of State Farm”;  that the stipulated judgment had “no reasonable relationship to any value for the injuries of [plaintiff]”;  that the liability claim against Dr. Turner for negligent entrustment was “tenuous at best,” and that Dr. Turner “would not be liable if the case were tried on its merits.”

On August 12, 1983, the Turners each executed a “PARTIAL ASSIGNMENT OF CLAIM FOR DAMAGES,” assigning to plaintiff all the Turners' “claims, demands, and cause[s] of action ․ against State Farm Mutual Automobile Insurance Company ․ or any other person ․ in connection with the [stipulated] judgment,” and “because of the failure of [defendant] and American Star Insurance Company to accept reasonable settlement offers within the limits of applicable insurance.”   On August 15, 1983, the stipulated judgment was entered, and plaintiff thereupon subscribed covenants not to execute upon the assets of the Turners.   Shortly afterwards, American Star paid plaintiff the $15,000 limit under one of its policies (see fn. 5, ante ).   About this same time, plaintiff accepted the unconditional tender by defendant of the $100,000 policy limits.

Within three weeks, on September 7, 1983, plaintiff, on account of his own perceived grievance as well as assignee of the Turners, filed the current action against defendant and ten Doe defendants for compensatory and exemplary damages, alleging both breach of the covenant of good faith and fair dealing and breach of the statutory duties arising under Insurance Code section 790.03, subdivision (h) (unfair claims settlement practices).

About two months later, plaintiff served American Star as a Doe defendant.   Shortly thereafter, plaintiff and American Star entered into a “sliding scale” agreement whereby American Star, in exchange for dismissal of the pending action against it, guaranteed plaintiff a $500,000 recovery outcome in the pending action.   The trial court later found that that agreement had been entered into in good faith.

Several more months later, plaintiff offered, pursuant to Code of Civil Procedure section 998, to settle the bad-faith claim for $749,000.   Defendant declined to accept the offer.   The following month, plaintiff again offered, pursuant to section 998, to settle the case for $699,999.   Again, defendant declined.

About 19 months later, plaintiff noticed a motion for leave to file a second amended complaint to join Kenneth E. Turner, M.D. as a plaintiff.   After a hearing, the motion was granted and the complaint was filed, alleging essentially the same operative facts which plaintiff had alleged in his First Amended Complaint.

The First Amended (pre-Turner) Complaint contained two counts.   In the first count, spread over 13 paragraphs, plaintiff undertook to state a cause of action, as Turner's assignee, based upon breach of the implied covenant of good faith and fair dealing by defendant in its handling of plaintiff's third-party claim, all of which was alleged to have resulted in the stipulated judgment against Turner for $1 million.   Copies of the assignments by Dr. Turner and his wife to plaintiff were attached as exhibits.   In the second count, spread over paragraphs 14–21, plaintiff undertook to state a cause of action for breach of the statutory duties arising under section 790.03, subdivision (h), sub-subdivisions (1) (5) and (13).   The prayer was structured to seek recovery of the $1 million stipulated judgment, general damages for emotional distress, plus punitive (exemplary) damages, pre-judgment interest and attorney's fees.

The Second Amended Complaint was substantially the same as the first.   Dr. Turner was added as a plaintiff, but otherwise the language is almost identical.   Three more paragraphs were added to the first count which are the same boilerplate as paragraphs 22, 23 and 24 of the second count which contains the same eight paragraphs as in count two of the First Amended Complaint.   The prayer of the latter filing is also identical to the former.

Defendant filed an answer to plaintiff's Second Amended Complaint, asserting as an affirmative defense therein that Dr. Turner's allegations were insufficient to state causes of action because he had assigned all such causes of action to plaintiff.

About 10 months later, in April 1986, the case proceeded to a jury trial.

At the outset of the trial, the court made several rulings which had a highly prejudicial impact on defendant's ability to present the full story of what had happened.   First, the trial court denied a motion in limine that no reference be made to Dr. Turner as a plaintiff, which was tantamount to denial of a motion for judgment on the pleadings as to Dr. Turner.   Next, the trial court ruled that the $1 million stipulated judgment was conclusive and binding on defendant.   As a consequence of that ruling, defendant was precluded from offering evidence of the nature and extent of the settlement “package,” including the clear statement by Attorney Sharp, counsel for Dr. Turner in the third-party action, that in agreeing to the settlement he had acted solely to protect Dr. Turner's interest without regard to that of defendant insurance company.

Otherwise, the trial court refused to allow evidence to show that plaintiff had given his covenant not to execute on the stipulated judgment against Dr. Turner.   Thus, the jury was allowed to proceed under a misconception that Dr. Turner was obligated to pay the $1 million judgment to plaintiff.

Finally, the trial court refused to allow evidence to show the existence of the $500,000 American Star excess limits policy.   Thus, when it came time to evaluate Dr. Turner's claim for emotional distress, allegedly arising from a judgment in excess of defendant's $100,000 policy limits, the jury did not know that Dr. Turner was aware that he had another $500,000 in excess coverage available.   Even more significantly, the jury never knew that a latter-day settlement effort had failed not because of defendant but actually because American Star had refused to contribute any part of its $500,000 policy limits to the settlement.   In other words, the evidence, which should have been admitted, would have showed that plaintiff had offered on August 3, 1983, to settle for $600,000, that defendant had offered to contribute its $100,000 policy limits, but that American Star had refused to contribute any of its $500,000 policy limits.   Had it done so, this case would never have been filed.

In any event, Dr. Turner testified that the entirety of the emotional distress he suffered was confined to a nine-day period between August 3, 1983, when he was informed of the possibility of a judgment against him in excess of $100,000, and August 12, 1983, the date of his settlement with plaintiff in the form of the stipulated judgment and covenant not to execute.   This nine-day period occurred after defendant had tendered the policy limits of $100,000.

Plaintiff's testimony at trial, which occupies only 9 pages of the 2,072–page trial transcript, was limited to his recollections of the April 1 and April 15 settlement conferences.   On direct examination plaintiff testified that he did not remember anything about the April 15 conference, and that all he remembered about the April 1 conference was that “we were going to go in and ask for the maximum policy which was $100,000, and State Farm only said they would pay $60,000, so we took it from there.”

On cross-examination, defendant's attorney read into evidence a portion of plaintiff's earlier deposition in which plaintiff had stated that at the April 1 settlement conference his attorney (Weinberg) had recommended that he, plaintiff, accept defendant's $60,000 offer, and that he had been “very upset” by that recommendation and had “almost slammed [Weinberg] up against the wall.” 6  The trial court later ruled that the jury could infer, based on the foregoing portions from plaintiff's deposition, that plaintiff was angry at defendant for failing to make an offer of $100,000, and that such an inference would be sufficient to support a determination that plaintiff had suffered emotional distress.7

Dr. Turner testified at trial that defendant never informed him that plaintiff had offered to settle the case for the policy limits of $100,000;  that Sharp's letter of August 2, 1983, supra, was the first communication he had received about any negotiations in the case;  that he had felt very threatened and depressed by the letter, because he had felt that the assets he had accumulated would be gone and that he might be in debt for a long time in the future;  that he had contacted an attorney, who had told him that he would be liable for any judgment in excess of the $100,000 policy limits;  that he had been depressed, anxious and unable to sleep;  that this condition had continued from August 3, when he had received the letter, until August “12 [sic],” when the stipulated judgment was entered (as noted, the record shows that the judgment was entered August 15), and he no longer was afraid that plaintiff would execute on his personal assets;  that his inability to sleep had been his only physical reaction during this period, and that he had incurred approximately $1,450 in attorney's fees during this period.

After plaintiffs had rested, defendant moved for a nonsuit as to plaintiff Blough on the ground that no evidence had been adduced to show that defendant had breached any duties devolving upon it under section 790.03, subdivision (h) of the Insurance Code, and further that there had been likewise no evidence offered of any damages.   In responding to the motion, counsel for plaintiff argued that there had been a breach of the covenant of good faith and fair dealing (despite the fact that there was no privity between plaintiff Blough and defendant) and that “there was a judgment that was entered into and that that judgment needs to be paid, and that's the measure of damages.”   When counsel for defendant responded that there was no evidence of any judgment, plaintiffs were allowed to reopen in order that the court take judicial notice of the judgment in the third-party action.   Counsel for defendant then argued that the judgment made no mention of any defendants in the lawsuit then being tried and that it was therefore irrelevant.   The trial court disagreed without explaining why and denied the motion.

Otherwise, although copies of the assignments by Dr. and Mrs. Turner to plaintiff Blough were attached to the complaint as exhibits, no reference to them was permitted during trial;  moreover, the court, as earlier noted, even refused to allow defendant to introduce evidence that plaintiff had agreed not to execute on the stipulated judgment.   After a lengthy discussion at the end of trial on the issues raised by the stipulated judgment and the effect of Dr. Turner's assignment, during which the court told plaintiff that he had a right to refer to the judgment in his closing argument, plaintiff told the jury, as a result of defendant's refusal to accept plaintiff's demand, that “a judgment was entered in the sum of one million dollars against Dr. Turner.   That means that so far as Dr. Turner is concerned, the first measure of damages is that one million dollar judgment.”  (The only other items plaintiff referred to as Dr. Turner's damages were his nine days of emotional distress and his $1,450 in attorney's fees.)   Thereupon, the court instructed the jury that a judgment in favor of plaintiff and against Dr. Turner and Tonya Turner in the amount of $1,000,000 in the underlying action was “conclusive on the issue of liability and damages in that action.”

During its deliberations, the jury asked the following questions:  “Is the one million dollar judgment in evidence.   Is it against Dr. Turner alone?   If not, what portion is against Dr. Turner.   We would like portions read pertaining to this.”   The court responded by rereading the foregoing instruction as to the judgment, and by stating that “there is a judgment in that amount against both Dr. Turner and Mrs. Turner.”   The jury also asked to have “compensatory” and “punitive” defined, and to have Dr. Turner's entire testimony reread.

Despite 17 days of trial, the jury deliberated for only 8 hours and returned the following special verdict:

(a) as to plaintiff:  (1) defendant State Farm Fire and Casualty Company and defendant State Farm Mutual Automobile Insurance Company each violated Insurance Code section 790.03, and such violations proximately caused damages of $2,502,000;  (2) defendant State Farm Fire and Casualty Company was guilty of oppression, fraud or malice, and should be assessed exemplary damages of $2,500,000;  (3) defendant State Farm Mutual Automobile Insurance Company was guilty of oppression, fraud or malice, and should be assessed exemplary damages of $3,000,000;

(b) as to Dr. Turner:  (1) defendant State Farm Fire and Casualty Company and defendant State Farm Mutual Automobile Insurance Company each breached the implied covenant of good faith and fair dealing and violated Insurance Code section 790.03, and such violations proximately caused damages of $1,750,000;  (2) defendant State Farm Fire and Casualty Company was guilty of oppression, fraud or malice, and should be assessed exemplary damages of $50,000;  (3) defendant State Farm Mutual Automobile Insurance Company was guilty of oppression, fraud or malice, and should be assessed exemplary damages of $50,000.8

Thereafter, judgment was entered on the special verdict.   Defendant then noticed a motion for a new trial, on the ground, among others, that the damages were excessive.   For his part, plaintiff noticed a motion for prejudgment interest, on the basis of defendant's refusal to accept his section 998 offers (see ante ).   After a hearing, defendant's motion for a new trial was denied, and plaintiff's motion for prejudgment interest was granted.   A second judgment was entered, identical to the previous judgment except for the provision as to interest.   Defendant has appealed from both judgments.   We deem the appeal to have been taken from the second judgment.

DISCUSSION

Defendant contends:  (1) there is no evidence of defendant's conduct which caused plaintiff Blough any damage, and, in any event, that the $2,502,000 awarded to plaintiff in compensatory damages is unsupported by the evidence;  (2) defendant was not bound by the stipulated judgment between plaintiff and the Turners, and that the trial court had erred in refusing to allow defendant to introduce evidence that the judgment was collusive;  (3) the $1,750,000 awarded to Dr. Turner in compensatory damages is contrary to law and unsupported by the evidence;  (4) the aggregate $5,600,000 in exemplary damages is unsupported by the evidence, is excessive and is the result of erroneous evidentiary rulings by the trial court;  and (5) plaintiff is not entitled to prejudgment interest.

In the analysis which follows, we shall deal first with the claim for compensatory damages by plaintiff Blough and then similarly with that of plaintiff Turner.   Thirdly, we shall consider whether exemplary damages were properly awarded to either plaintiff.   Finally, in Section IV, [not certified for publication] we shall address the admissibility of an item of evidence (the Excess Claims Manual) which undoubtedly contributed substantially to the large verdict returned by the jury.

In the instance of plaintiff Blough, as a matter of law, defendant breached no duty devolving upon it under the arguably applicable provisions of the Insurance Code.   More particularly, the delay from April 1, 1983, to July 19, 1983, to raise the offer to settle from $60,000 to the policy limits of $100,000, was with “proper cause” and hence did not constitute tortious conduct.   As a consequence, defendant provided no legal cause for plaintiff Blough to suffer any damages, and so the motion for nonsuit as to plaintiff Blough should have been granted.

In the instance of plaintiff Turner, as a matter of law, once he assigned to Blough his so-called bad-faith claim and the stipulated judgment against defendant, he had no legal grievance remaining to pursue against defendant.   As a consequence, the motion in limine that no reference to Turner as a plaintiff be made should have been granted.

As for the exemplary damages, if neither of the two plaintiffs were entitled to recover compensatory damages, it is axiomatic that neither was entitled to exemplary damages.

With reference to the Excess Claims Manual, it was erroneously admitted because no proper foundation was laid as required by section 403 of the Evidence Code.

I

THE $2,502,000 COMPENSATORY DAMAGE AWARD TO PLAINTIFF BLOUGH

As earlier noted, plaintiff Blough's Second Amended Complaint against defendant proceeded on two salients.   One theory of entitlement to recovery, as alleged in the first count, was the assignment to plaintiff of Turner's (the insured's) tort claim against defendant, arising out of defendant's alleged breach of the implied covenant of good faith and fair dealing.   Copies of the “PARTIAL ASSIGNMENT(S) OF CLAIM FOR DAMAGES” were actually attached as exhibits to the complaint.

Despite the elaborate allegations in this count, reciting defendant's breach of the implied covenant of good faith and fair dealing as to Turner, particularly paragraphs 10 and 11 thereof, and despite the allegations of the assignment of any claim arising therefrom, no effort was made at trial by plaintiff Blough (see fn. 1, ante ) to prove entitlement to recovery under the first count.   As also already noted, plaintiff actually was able to persuade the court to suppress any reference to the assignment which provided the entire basis for count one of the amended complaint.

The other theory of entitlement, as alleged in the second count, was that defendant had violated certain statutory duties imposed for plaintiff's benefit by section 790.03, subdivision (h) of the Insurance Code, which tabulates a laundry list of unfair claims practices.

More particularly, under plaintiff's breach-of-statutory-duty theory, he placed particular emphasis on the emotional distress he suffered because the $100,000 policy limits were not immediately paid when first demanded on April 1, 1983.   There were also allegations claiming a loss of interest because of the “delay” in payment of the policy limits.

In its brief, defendant first contends that the judgment as to Blough must be reversed “because there is no evidence State Farm's conduct caused [Blough] any damage ․”  In other words, defendant contends that no bad faith liability was demonstrated at the trial, citing Austero v. National Cas. Co. (1978) 84 Cal.App.3d 1, 148 Cal.Rptr. 653, disapproved on other grounds in Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 824, fn. 7, 169 Cal.Rptr. 691, 620 P.2d 141, where this court held, as a matter of law, that the insurer's conduct in handling plaintiff's claim was not a breach of the implied covenant.

Confining the immediate discussion here to the statutory duty owed directly to plaintiff under section 790.03, subdivision (h) of the Insurance Code, as defined by Royal Globe (supra ), the relationship of the parties in this context is similar to that obtaining in garden-variety, so-called first-party cases.   In such cases, e.g. Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032, the insurance company has a direct contractual obligation to pay the insured upon the happening of some casualty-type event defined as a risk by the policy.   In Gruenberg the casualty was a fire, and the insurance policy issued by Aetna was a fire policy.   In any such context, it is now established beyond question that running in concert with the insurance contract is an implied covenant of good faith and fair dealing, the breach of which is a tort.   The content of the statute here involved and the rationale of these first party, common-law, bad-faith cases provides the predicate to reason by analogy and reach a conclusion that the breach of statutory duties imposed by section 790.03, subdivision (h) of the Insurance Code can be characterized by the same kind of tortious conduct as that constituting breach of the implied covenant.   Such a conclusion has already been reached in the decided cases, a recent example of which is Kelly v. Farmers Insurance Exchange, 194 Cal.App.3d 1, 6, 239 Cal.Rptr. 259.   However, as we shall later explain, the decided cases under the Unfair Practices Act thus far have not undertaken to transpose from the common-law, bad-faith cases into the Unfair Practices Act cases an actual standard against which alleged statutory violations are to be measured, i.e., in terms of the actual behavior or conduct complained of.

To digress briefly, plaintiff alleged the breach of three such duties proscribed by subdivision (h).   They are:

“(1) Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.”

“(5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.”

“(13) Failing to provide promptly a reasonable explanation of the basis relied on in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement.”

Returning to the main thread of the analysis, the question next to be addressed is whether there is evidence in this undisputed record which showed a breach of any of these proscriptions.   In seeking an answer to this question, the inquiry narrows mainly to No. 5, “not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.”

On the facts here, the liability of Turner to plaintiff in the third-party action has never been questioned.   However, that was only half the story;  the other half of the story involved determining the dollar value to be attributed to the third party's damages.   To review the bidding, so to speak, plaintiff (as a third-party plaintiff) made no demand until April 1, 1983.   At the first settlement conference on that date, defendant offered $60,000;  plaintiff demanded policy limits of $100,000.

At that time, defendant's claims superintendent Harrington had the benefit of certain medical reports, and Attorney Sharp, who was representing Turner, had recommended the $60,000 figure.   After the failure to reach a settlement on April 15, 1983, Attorney Sharp received the report from Dr. Tweedie, ante, which was by far the most revealing of plaintiff's medical problems as contained in the several reports.   Thereafter, the case proceeded into its discovery phase, and both parties caused various of the examining physicians to be deposed.   Early in July of 1983, after the depositions had been summarized and those summaries evaluated, Harrington gained a substantially different view of the case and concluded that it had a potential exposure of $500,000 to $600,000.   As a consequence, Sharp moved quickly on July 19, 1983, with defendant's authorization, to offer the policy limits of $100,000.   However, plaintiff refused, even though just 3 months earlier he was prepared to accept the $100,000 policy limits.   This suggests a fair indication that plaintiff, over the intervening three months, had also gone through a similar process of re-evaluation of the case.   This all occurred well before the case was scheduled to go to trial and was also about four weeks before the later settlement was reached between plaintiff and Turner.   The handling of plaintiff's claim by defendant is hardly comparable to the behavior of the insurers in Gruenberg and Silberg, two of the leading authorities which have defined the nature and extent of insurance company conduct constituting breach of the implied covenant.

Earlier, we observed generally that the evolution of precedent has come to the point of pronouncing that “[s]ection 790.03, subdivision (h), is a codification of the breach of the implied covenant of good faith and fair dealing as applied to insurance.”  (Kelly v. Farmers Insurance Exchange, supra, 194 Cal.App.3d 1, 6, 239 Cal.Rptr. 259.)   Earlier pronouncements of the concept have appeared in the decisions, but were not necessary to the result reached in those cases.

In Richardson v. GAB Business Services, Inc., 161 Cal.App.3d 519, 207 Cal.Rptr. 519, the court said, “It appears to us that the actionable wrong of ‘bad faith’ contained in section 790.03 is a codification of the earlier tort of bad faith, which historically is a breach of the duty of good faith and fair dealing which is implied in every contract.  (Universal Sales Corp. v. Cal. etc. Mfg. Co. (1942) 20 Cal.2d 751 [128 P.2d 665];  Brown v. Superior Court (1949) 34 Cal.2d 559 [212 P.2d 878];  Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654 [328 P.2d 198, 68 A.L.R.2d 883];  Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425 [58 Cal.Rptr. 13, 426 P.2d 173].)  Section 790.03 merely enumerates those practices which are actionable and extends the cause of action to third party claimants, such as a third party's tort claim against a liability insurance carrier for a tortfeasor.   Thus, the insurance contract itself is the basis for holding insurance companies and those engaged ‘in the business of insurance’ to a higher standard when negotiating and settling claims.”  (Id., at p. 524, 58 Cal.Rptr. 13, 426 P.2d 173.)

However, the issue resolved in that case was whether a self-insured corporation was subject to these Insurance Code provisions.   The court held that it was not;  hence, just what standard was to be used in measuring whether there had been any such violations was no part of the basis for the decision's result.

In General Ins. Co. v. Mammoth Vista Owners' Assn. (1985) 174 Cal.App.3d 810, 220 Cal.Rptr. 291, the court said, “The actionable wrong contained in Insurance Code section 790.03, subdivision (h), is merely a codification of the tort of breach of the implied covenant of good faith and fair dealing as applied to insurance.  (Richardson v. GAB Business Services, Inc. (1984) 161 Cal.App.3d 519, 524 [207 Cal.Rptr. 519].)  ‘Section 790.03 merely enumerates those practices which are actionable and extends the cause of action to third party claimants, ․’ (Ibid.;   see Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 888 [153 Cal.Rptr. 842, 592 P.2d 329].)

“Under common law, every insurer has an implied-in-law duty to act fairly and in good faith in handling the claim of an insured.  (Gruenburg [sic] v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 573–574 [108 Cal.Rptr. 480, 510 P.2d 1032].)   Tortious violation of that duty may occur in several ways, including failure ‘without proper cause, to compensate its insured for a loss covered by the policy’ (Gruenberg, at p. 574 [108 Cal.Rptr. 480, 510 P.2d 1032] );  failure to properly investigate a claim (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 819 [169 Cal.Rptr. 691, 620 P.2d 141] );  and failure to accept a reasonable settlement within policy limits (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 661 [328 P.2d 198, 68 A.L.R.2d 883] ).”  (Id., at pp. 822–823, 220 Cal.Rptr. 291.)

The pivotal issue in General Ins. was whether a surety is subject to regulation by these provisions of the Insurance Code.   The court went on to conclude that a surety can be charged with violation of the Unfair Practices Act.   However, the decision does not refer in any respect to the nature and extent of the conduct in which the surety must engage before being in violation of the Act.

The court in Kelly, without articulating a standard against which to measure the insurer's conduct, sent the case back to the trial court to determine if there had been a statutory violation, more particularly to determine if “a triable issue of fact exists as to whether Farmers' refusal to pay the $25,000 policy limit unless United released its claim constituted an unfair settlement practice.”  (Kelly v. Farmers Insurance Exchange, supra, 194 Cal.App.3d 1, 9–10, 239 Cal.Rptr. 259.)

Now that the rule is established that Insurance Code section 790.03, subdivision (h), “is merely a codification of the tort of breach of the implied covenant of good faith and fair dealing as applied to insurance” (General Ins., supra, 174 Cal.App.3d at p. 822, 220 Cal.Rptr. 291), there is precedent readily at hand for transposing from the common-law cases a standard of behavior for use in the statutory cases.

In California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 221 Cal.Rptr. 171, we were dealing with a similar situation in which the insurer had initially declined to accept tender of the defense because of a mistaken belief of no coverage actually induced by the insured.   There we said, “In determining what further must appear for there to be bad faith, the cases reflect a wide variety of language, increasingly identifiable with particular categories of cases.   After variously recognizing the rule quoted, the Gruenberg court said ‘where ․ [the insurer] fails to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in tort for breach of an implied covenant of good faith and fair dealing.’  (Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566, 574, 108 Cal.Rptr. 480, 510 P.2d 1032, original italics deleted;  italics added.)   Of course, the converse of ‘without proper cause’ is that declining to perform a contractual duty under the policy with proper cause is not a breach of the implied covenant.  (See Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 770 [206 Cal.Rptr. 354, 686 P.2d 1158].)

“Translated into more specific terms within the recognized general standard, then, Gruenberg stands for the proposition that, before an insurer can be found to have acted tortiously, i.e., in bad faith, in refusing to bestow policy benefits, it must have done so without proper cause.

“That this language best articulates the evolving standard against which an alleged breach of the implied covenant is to be measured is confirmed in Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910 [148 Cal.Rptr. 389, 582 P.2d 980], where the Supreme Court actually quoted the Gruenberg ‘without proper cause’ language in its analysis of whether the insurer had breached the implied covenant.  (Id., at pp. 920–921 [148 Cal.Rptr. 389, 582 P.2d 980];  accord, Hanson v. Prudential Ins. Co. of America [9th Cir.1985], supra, 772 F.2d 580, 584, citing Neal and Gruenberg for this proposition;  Safeco Ins. Co. of America v. Guyton (9th Cir.1982) 692 F.2d 551, 557, fn. 7.)”  (Id., at pp. 54–55, 221 Cal.Rptr. 171.)

Our turning here to the Gruenberg, “without proper cause” standard for use in the statutory case is reinforced by Kelly's citation of General Ins. as the precise authority for its categorical pronouncement of the proposition that “[s]ection 790.03, subdivision (h), is a codification of the tort of breach of the implied covenant of good faith and fair dealing as applied to insurance.  (General Ins. Co. v. Mammoth Vista Owners' Assn. (1985) 174 Cal.App.3d 810, 822 [220 Cal.Rptr. 291] ․)” (Kelly v. Farmers Insurance Exchange, supra, 194 Cal.App.3d 1, 6, 239 Cal.Rptr. 259.)   We say “reinforced,” because on page 823 of General Ins., included in language we have already quoted, the court actually relies upon the Gruenberg rationale when it says, “[t]ortious violation of that duty may occur in several ways, including failure ‘without proper cause to compensate its insured for a loss covered by the policy.’ ”  (General Ins. Co. v. Mammoth Vista Owners' Assn., supra, 174 Cal.App.3d 810, 823, 220 Cal.Rptr. 291.)   Thus, as we observed in California Shoppers, “Translated into more specific terms within the recognized general standard, then, Gruenberg stands for the proposition that, before an insurer can be found to have acted tortiously, i.e., in bad faith, in refusing to bestow policy benefits, it must have done so ‘without proper cause.’ ”  (California Shoppers, Inc. v. Royal Globe Ins. Co., supra, 175 Cal.App.3d 1, 54–55, 221 Cal.Rptr. 171, emphasis added.)

 Measured against this standard, i.e., “without proper cause,” the defendant's handling of this claim, as a matter of law, was not a violation of section 790.03, subdivision (h) of the Insurance Code.   During the interval between April 15, 1983, and July 19, 1983, the widely followed practice of deposing the several examining physicians was undertaken and completed.   There was absolutely no evidence to show that this customary step in claim evaluation was taken for purposes of delay or for any other bad-faith motive.   In other words, the delay in tendering policy limits until July 19, 1983, was with proper cause, i.e., to depose the several doctors and to evaluate those depositions.   Thus, because, as a matter of law, there was no evidence of a breach by defendant of any statutory duty owed plaintiff, no liability was established, and so there could have been no damage suffered by plaintiff proximately caused by defendant.

 In this general connection, defendant submitted Special Jury Instruction No. 8 based upon Gruenberg.   It was refused.   The key sentence on that instruction stated that “[t]o establish bad faith, the denial of the claim or the failure to pay the amount demanded by a party must not only be erroneous but must also be unreasonable.”   To be more accurately reflective of Gruenberg, the proposed instruction should have substituted “without proper cause” for “unreasonable.”   However, it was yet prejudicial error to refuse to give the instruction, for no other instruction provided any guidelines by which the jury could measure whether defendant's conduct was or was not tortious.   The only other instruction bearing even remotely on the subject was a modified version of BAJI 2.60 which included, as a stated requirement of the burden of proof devolving upon plaintiff Blough, that he prove that defendant had “violated” the pertinent provision of the Insurance Code.   This requirement contains no language which undertakes to define the nature of the conduct necessary to constitute a “violation”;  hence the prejudicial error in refusing to give defendant's Special Jury Instruction No. 8.

As a consequence, because no liability in the form of a violation of the statutory duty was established, discussion of damages of any kind, either emotional distress or unpaid interest, allegedly flowing therefrom would be pointless.   However, even though “pointless” in terms of disposing of the appeal, because the issue was substantially briefed, we feel constrained to comment upon the damages side of plaintiff's claim for entitlement to recovery under section 790.03, subdivision (h) of the Insurance Code.

 Defendant contends that plaintiff's evidence of emotional distress was limited to the “tantrum” directed at his own attorney during the April 1 settlement conference (see fn. 6, ante ), and that that one incident was insufficient either to constitute compensable emotional distress, or to support an award of approximately $2.5 million therefor.   Defendant's assessment of the evidence in the record is correct.

Plaintiff did not offer any additional evidence that he was emotionally distressed by defendant's refusal to accept his $100,000 demand, but contends that “[o]ne can imagine the humiliation that [he] would suffer from having to convince everyone” (emphasis added) that his learning and emotional problems were due to the collision (i.e., defendant's refusal to settle, despite its knowledge of such problems, would cause people to infer that such problems were plaintiff's “own fault” and not due to the collision), and that the emotional distress he suffered lasted at least until defendant offered the policy limits and possibly longer, because the offer was reasonably subject to the interpretation that it was made to avoid trying the case, and not in recognition that plaintiff's problems had been caused by the accident.

In any case, plaintiff's contentions are conclusively refuted by Austero v. Washington National Ins. Co., 132 Cal.App.3d 408, 182 Cal.Rptr. 919, disapproved on other grounds in Brandt v. Superior Court (1985) 37 Cal.3d 813, 816–817, 210 Cal.Rptr. 211, 693 P.2d 796, and by Commercial Cotton Co. v. United California Bank, 163 Cal.App.3d 511, 209 Cal.Rptr. 551.

In Austero, the plaintiff had not testified at trial, and on appeal her only argument in support of the emotional distress award was that it could be inferred from the evidence of the defendant's bad faith that a person in her shoes would suffer emotional distress.   In striking the award, this court held that “[e]ven assuming such an inference might reasonably be drawn, however, it would not be sufficient to show that [plaintiff] actually suffered emotional distress.   Plaintiff had the burden of proving her damages with reasonable certainty and this burden was not lessened by showing defendant's bad faith.”   (Austero v. Washington National Ins. Co., supra, 132 Cal.App.3d, 408, 417, 182 Cal.Rptr. 919, original emphasis.)

In Commercial Cotton, the plaintiff had testified at trial, but not on the emotional distress issue, and the only evidence on the issue had been the testimony of the plaintiff's attorney that the plaintiff had told him on the telephone that he was “ ‘angry and that he felt he was being given a run around [by the defendant bank] and ․ it appeared to [the attorney] that [the plaintiff] was aggravated and irritated and upset about it.’ ”  (Commercial Cotton Co. v. United California Bank, supra, 163 Cal.App.3d 511, 517, 209 Cal.Rptr. 551.)   In striking the award, the first division of this district held that damages for emotional distress in a bad faith action may be awarded only when the injuries suffered are “severe, i.e., substantial or enduring as distinguished from trivial or transitory,” and that the foregoing evidence of the plaintiff's “short-lived” emotional disturbances was insufficient as a matter of law to sustain an award for emotional distress.  (Id., at p. 517, 209 Cal.Rptr. 551.)

Plaintiff attempts to distinguish Austero and Commercial Cotton on the grounds that neither of the plaintiffs in those cases had testified to any emotional distress.   However, in the case here, plaintiff likewise did not testify to any emotional distress.   The only evidence of such distress was elicited by defendant, on cross-examination, through plaintiff's deposition statements that he had been upset when Attorney Weinberg had recommended that he accept defendant's offer of $60,000.   Moreover, when plaintiff was asked on direct examination if he remembered whether Weinberg had recommended that he accept the $60,000, he answered “I don't remember.”   Further, the evidence as to whether or not Weinberg had recommended that plaintiff accept defendant's offer (and thus plaintiff's emotional reaction thereto) had been introduced on the issue of the reasonableness of the offer, and not on the issue of plaintiff's emotional distress.   On his direct examination, which fills less than two pages of the reporter's transcript, plaintiff was never asked any questions about emotional distress.

Based upon the foregoing analysis, it is clear, as a matter of law, that the evidence was insufficient to show that plaintiff had suffered damages attributable to any arguable breach by defendant of its statutory duties arising under the Insurance Code.   This view of the issue, of course, extends to and nullifies loss of the use of the $100,000 policy limits between April 1, 1983, and July 19, 1983;  there was no culpable delay in finally tendering this sum on July 19, 1983.   Otherwise, plaintiff Blough cannot be heard to claim entitlement to interest on the $60,000 offered him on April 1, 1983;  he refused to accept it.

Thus, plaintiff Blough, as a matter of law, failed to establish either liability or damages under the second count of the Second Amended Complaint which alleged defendant's breach of its statutory duties arising under the Insurance Code.

As earlier noted, plaintiff made no effort to recover under the first count of the Second Amended Complaint;  thus, when defendant moved for a nonsuit as to plaintiff Blough, the only issue before the trial court was whether he had made a prima facie case to show a breach of the defendant's statutory duties.   Within this framework, which plaintiff Blough and his counsel had themselves created, it was both misleading and irrelevant for plaintiff's counsel to argue, in resisting the motion for nonsuit, that there had been a breach of the implied covenant and that there was a judgment “entered into and that that judgment needs to be paid.”   Plaintiff Blough was never in privity with the implied covenant, and, as Turner's assignee of the common-law, bad-faith claim, he pointedly eschewed proving up his case on that count.   Otherwise, he certainly was never going to have to pay the stipulated judgment.   It was entered in his favor.   Accordingly, in light of the issues actually tendered to the trial court by defendant's motion for nonsuit as to plaintiff Blough, it was error not to have granted it.

II

THE $1,750,000 COMPENSATORY DAMAGE AWARD TO PLAINTIFF TURNER

This award is the aggregate of two items.   One is the $1 million which the court instructed the jury to award plaintiff Turner on account of the stipulated judgment;  the other is the $750,000 for “emotional distress” damages suffered at the hands of defendant, plus attorney's fees, because of the way it handled the third-party claim against Turner before he became a plaintiff in the case here.

 Dealing first with the stipulated judgment, we shall start with the pleadings.   It requires no citation of authority to support the truism that the pleadings frame the issues to be resolved by the trier of fact.   Earlier we have been at pains to point out:  (1) that the first count of the Second Amended Complaint, on which the case went to trial, contains elaborate allegations reciting the manner in which defendant had breached the implied covenant of good faith and fair dealing running in favor of its insured, Turner;  (2) that this led to a stipulated judgment against Turner for $1 million;  and (3) that the claim, based on the conduct leading to the judgment, was assigned to plaintiff Blough (copies of the assignments were actually attached to the complaint as exhibits).   Notwithstanding that plaintiffs themselves had alleged these facts, the trial court would not allow defendant to put on evidence of the assignment.   This was prejudicial error.

The Reporter's Transcript and plaintiffs' brief abound with various statements to the effect that the stipulated judgment is binding on defendant and that it would have been impermissible to go “behind the judgment.”   The arguments and authorities urged in support of these propositions are a kaleidoscope of convoluted obfuscation.   It would not have represented going behind the judgment to inquire into what happened after the judgment was stipulated to, e.g., the assignment and covenant not to execute.

Getting back to the pleadings, in paragraph 9 of the first count, it was alleged, because of defendant's refusal to accept plaintiff's settlement offer (of $100,000), the Turners entered into the stipulated judgment for $1 million.   Then in paragraph 12 it was alleged, as a proximate result of the wrongful conduct of defendant, that the Turners were damaged in the amount of $1 million “pursuant to the Stipulated Judgment ․”  These facts provided the basis for plaintiffs' argument to the trial court and its ruling that the judgment was binding on defendant.   The logic of such conclusion eludes us.

 First, any judgment entered in the third-party action, whether by trial, stipulation or otherwise, is only conclusive and res judicata as to the issues extant in that action and as to the principals who were parties thereto.   Accordingly, the stipulated judgment established, as between Blough and the Turners, only that Mrs. Turner's negligence caused personal injuries to plaintiff Blough amounting to $1 million.   Likewise, such judgment is res judicata only as between those parties.

Whether or not the $1 million obligation of Turner (never mind the covenant not to execute) could be translated into an obligation which is binding on defendant insurer depends on the conduct and behavior of the insurer in how it handled the third-party claim.   Counsel on neither side needs to be cited the authorities.   They know them as well or better than we do.   It is now settled, if an insurer fails to tender policy limits, that a judgment in excess of the policy limits becomes the measure of damages for violation of the implied covenant.   Such violation in this third-party context takes the form of favoring the insurer's own interests over the insured's, thereby exposing the insured to the excess judgment.   This is a salutory rule, easy to understand and easy to apply.

However, the reason for the rule should not be ignored in scattergun attempts to apply it.   In the case here, in early August 1983, plaintiff's counsel made alternative settlement offers.   The first was for $600,000 to be funded by the $100,000, which defendant had already offered, plus the $500,000 policy limits available under American Star's policy.   American Star balked.   Then plaintiff's counsel offered the package of a $1 million stipulated judgment, coupled with the assignment and covenant not to execute.

In terms of what the record reflects concerning what happened at this point in time, we find the respective arguments of the parties with reference thereto difficult to follow.   Earlier, we have quoted from Attorney Sharp's letter of August 9, 1983, by which he accepted on behalf of Dr. Turner the stipulated-judgment, settlement offer.   This letter also included the statement that “The stipulated judgment was obtained under duress and threat that if not agreed to, then the case would proceed to trial, leaving Dr. and Mrs. Turner subject to potential execution of their personal assets.   I have acted solely in their interests, without any thought to the interests of State Farm, which retained this office as counsel and who has paid the cost of defense.”

The record further reflects that also on August 9, 1983, Sharp wrote to State Farm, in pertinent part, “I advised Mr. Weinberg that the stipulated judgment of $1,000,000 was 10 times what he had originally offered to settle the case for ($100,000) on April 1, 1983.   I further indicated to him that the proposal of a stipulated judgment in that amount was made under duress, knowing full well that Dr. and Mrs. Turner would demand that any such judgment be entered into as long as it protected the two of them from execution on their personal assets for any judgment above the policy limits.

“․

“On August 8, 1983, after discussion with associate counsel, Mr. Eskin, on behalf of Dr. and Mrs. Turner, demanded that the undersigned agree to the stipulated judgment.”

Otherwise, on August 15, 1983, Sharp reported to Harrington, stating, “I indicated that on behalf of the Turners, in order to protect them from any possible excess judgment, I had agreed to the stipulated judgment although the judgment was far in excess of the value of Robert Blough's injuries, and further, that Dr. and Mrs. Turner might escape liability completely if the case were tried.   It was also pointed out that the stipulated judgment was entered into at the demand of Dr. and Mrs. Turner's personal counsel, Jeff Eskin, and I requested that he confirm that such a settlement was entered into at his request.”

Plaintiffs' brief puts a remarkable spin on the implication of these several communications in combination with the stipulated judgment and covenant not to execute.   To quote, “The truth of the matter is that Mr. Sharp's decision was a sensible one from State Farm's point of view.   Mr. Weinberg had written Mr. Sharp a detailed five page single-spaced letter, which explained how a jury easily could evaluate Robert's damages as being $1,000,000․  By stipulating to Robert's judgment, Mr. Sharp was avoiding the possibility that Robert would obtain a judgment of even more than $1,000,000.   He was also saving State Farm the attorneys fees that it would have incurred if Robert's case against Dr. Turner had gone to trial.

“Mr. Sharp's assertion that when he signed the stipulation for judgment, he did not do so for State Farm's interest, but only to protect Dr. Turner, is therefore false, both factually and legally.   Mr. Sharp was being paid by State Farm at the time.   The stipulation for judgment was actually in State Farm's interest.   Moreover, by this time, Dr. Turner was also represented by a Nevada attorney, Mr. Eskin.   Mr. Sharp could have refused to participate in the settlement, if he truly thought that the $1,000,000 stipulated judgment was inappropriate, or contrary to the interests of State Farm.  [Fn. omitted.]”

Defendant's position on this is twofold.   It first points to a stipulation, entered into at trial following an offer of proof by defendant, that “Mr. Sharp will say that he was coerced into a stipulated judgment;  that he did it without the consent of State Farm.”

Defendant's second rejoinder is “Moreover, the absurdity of plaintiffs' position that State Farm, through Sharp, consented to the Blough–Turner deal because that deal was in State Farm's interests is self evident.   Anyone looking at the Blough–Turner agreement would instantaneously know its sole purpose was to convert Blough's personal injury action against Dr. Turner into a bad faith action against State Farm.   The express terms of the agreement virtually say as much.   State Farm did not consent to the Blough–Turner deal.”

In our view both sides are wide of the mark.   From this perspective, it appears to us that the stipulated judgment, coupled with the covenant not to execute, from State Farm's standpoint, was almost too good to be true.   Defendant's obligation under the implied covenant was to act first in its insured's (Turner's) interest.   And what was that obligation?   Such obligation was to do whatever was required to avoid the insured's exposure to liability in the third-party action in excess of the policy limits.   This is precisely the way it turned out.   As a result of the covenant not to execute, Turner was forever absolved of any liability to plaintiff Blough, and, a fortiori, defendant had no Comunale—Crisci—Johansen—type exposure.

Suppose Sharp had turned down the second alternative and the third-party action had gone to trial without the tender of policy limits, resulting in a verdict in excess of those policy limits, can anyone doubt for a minute that defendant would have been liable for the excess under Comunale, Crisci and Johansen?   Based on what actually happened, could it be yet argued that defendant should be liable either way?   Plaintiffs do so in their brief.

 To close this phase of the analysis, viewing the decisions which have established the measure of bad-faith in third-party cases, if an insurer, acting under the compulsion of those decisions to avoid its own bad-faith exposure for an excess judgment, has succeeded in eliminating its insured's exposure to such excess judgment, that does not amount to disregarding the insured's interests.   The insured is still insulated, and to argue nevertheless that the insurer is liable for a tort is absurd.   The measure of bad faith in third-party cases is to suffer the insured's exposure beyond the policy limits.   Here the deal agreed to by Sharp resulted in zero exposure to his client Turner.   It could not have served Turner's interests better, and thus, the argument of plaintiffs above quoted demonstrates its own absurdity.   Plainly put, in other words, it is specious to argue that defendant is “bound” by the stipulated judgment because it “consented” to it.   The reality whether the settlement was consented to or not by defendant, is that such settlement was in the best possible interests of Turner, the insured, with the result that sufferance of the stipulated judgment, because coupled with the covenant not to execute, did not constitute breach of the implied covenant per Comunale, Crisci and Johansen.   Why?  Because, finally there was no excess exposure of the insured.

Otherwise, what happened here is similar to the facts in Doser v. Middlesex Mutual Ins. Co., 101 Cal.App.3d 883, 162 Cal.Rptr. 115.   In that case Kelly, the pilot, and Doser a passenger, were killed in a plane crash.   The Doser Heirs, after their claim was rejected, filed a wrongful-death action against Kelly's estate.   At the time of the crash, Kelly was a member of a flying club and had leased from the club the plane he was flying.   The club was insured by Middlesex, with the result that, potentially, the estate had available to it proceeds payable under the Middlesex policy.   After the passage of time and occurrence of events not here material, the attorney for the Doser Heirs wrote to the attorney for the estate charging the insurer with bad faith and failing to defend the wrongful death action and for failure to settle for the $100,000 policy limits.   The attorney for the Doser Heirs went on to state that they would be willing to settle the case against the estate in exchange for an assignment of all causes of action the estate might have against Middlesex.   The scenario proposed was that the wrongful death action be taken off calendar and that the Doser Heirs proceed directly against Middlesex.

To implement this scenario, the wrongful death claim was “compromised” for $980,000.   Thereupon, the Dosier Heirs gave a promise of a full release to the Kelly Estate in exchange for an assignment of the Kelly Estate's claims against Middlesex.   The Doser action was to recover the $980,000 which it had agreed to in its “compromise” with the Kelly Estate, and which it alleged to be the damages resulting from the insurer's bad-faith breach of the insurance contract.

The jury returned a special verdict in which it found that Middlesex had breached the implied covenant in failing to defend and failing to settle.   However, it also found that the estate had in turn breached its implied covenant of good faith and fair dealing running in favor of Middlesex.   The Doser Heirs appealed.

The case is useful here because the appellate court decision concurred in the Middlesex argument that the Kelly Estate never suffered any legal liability, with the result that there was no basis for an assertion of bad faith by the estate's assignee.   After marshalling the cases which have established the predicate for insurer liability for excess judgments in third-party cases, the opinion recites that “The rationale of the cases requiring a judgment as a condition precedent to an insured's cause of action against an insurer becomes manifest when we deal with the issue of damages in this case.   We are concerned here not only with the fact of damages being clearly established, but the certainty of the amount thereof as well.  (4 Witkin, Summary of Cal.Law (8th ed. 1974) Torts, § 846, p. 3140.)   The glaring flaw in the Doser Heirs' case against Middlesex is the unprecedented manner in which they arrived at the $980,000 damage figure.   They bootstrapped their damages with the ingenious assistance of counsel.

“No judge or jury ever considered the facts of the wrongful death case and came up with an appropriate verdict on which a judgment could be based.   No agreement as to damages was ever reached in which a representative of the insurance company participated.   Cathcart on behalf of the Doser Heirs merely ‘compromised’ their claim for damages against the Estate for $980,000, a figure $480,000 in excess of their original claim, only $20,000 less than their prayer in the San Diego action, and $880,000 in excess of the Middlesex policy.”  (Id., at p. 892, 162 Cal.Rptr. 115.)

After describing the circumstances of how Attorney Cathcart, representing the Doser Heirs, had orchestrated the bad-faith scenario, the opinion concluded, “To excuse Middlesex's participation in arriving at a damage figure enabling action against it by the Estate or the Doser Heirs as assignees because of an alleged breach of contract by Middlesex would be to invite collusion between the claimants and the insured.   Here, Cathcart acting virtually alone set the amount of damages, albeit on behalf of his clients and as an expert in the field of aircraft accident litigation.   We know of no legal precedent condoning such action, nor do we propose to author an opinion which would become such authority.   Such a worthless paper transaction cannot support the Doser Heirs' damage claim in their cause of action against Middlesex.

“The Doser Heirs' assigned cause of action was invalid because the liability of Middlesex to the Estate has not been determined in a manner approved by the case law or contemplated by the insurance contract.   The adverse resolution of this issue is dispositive of the appeal.”  (Doser v. Middlesex Mutual Ins. Co., supra, 101 Cal.App.3d 883, 893–894, 162 Cal.Rptr. 115.)

So it was here.   No doubt, plaintiff's counsel had read Middlesex and concluded that he could finesse the problem by obtaining a judgment, even if by stipulation.   However, the best we can say is “nice try.”   If the measure of damages in bad-faith cases, arising from prior third-party actions, is going to be the excess of the insured's liability over policy limits, the determination of that excess must be as defined by Justice Klein, “in a manner approved by the case law or contemplated by the insurance contract.”  (Doser v. Middlesex Mutual Ins. Co., supra, 101 Cal.App.3d 883, 894, 162 Cal.Rptr. 115.)   The $1 million judgment stipulated to as purportedly representing Turner's liability had the third-party action having been pursued through a regular trial, was pure speculation and substantially exceeded plaintiff's several demands under section 998 of the Code of Civil Procedure.

The foregoing analysis has proceeded on the premise that there was no viable legal theory on which Turner himself could have pursued any bad-faith claim, let alone whether his assignee could.   Nevertheless, we are constrained to deal with an unsubstantiated position, argued by plaintiffs, both in their brief and at oral argument in support of the rulings of the trial court to suppress evidence of the assignment of the bad-faith claim and to direct a verdict of $1 million in favor of plaintiff Turner.

To quote from the brief, “The series of agreements surrounding the stipulated judgment included not only the covenant not to execute, but also Dr. Turner's assignment of his right to recover the $1,000,000 from State Farm.   Thus, this $1,000,000 in fact belongs to Robert.   Dr. Turner will have to pay this portion of the judgment over to Robert, pursuant to the partial assignment.

To quote further from plaintiffs' brief, “This has been recognized as a perfectly proper procedure.   In situations such as the present case, it is common for the tort victim to give the insured a covenant not to execute against his personal assets, in exchange for an assignment of the insured's right to recover the excess judgment from his insurer.   This protects the insured's personal assets, and assures the tort victim that he will be able to collect when the insurance company is made to pay the excess judgment.

“Appellants have cited no decision, and respondents are aware of none, in which a court has held the existence of such a covenant not to execute absolves the insurance company from its obligation to pay the excess judgment, after it unreasonably refused a policy limits settlement offer.   Rather, recovery of the excess is permitted.43  [See infra.]  (See, e.g. Samson v. Transamerica Ins. Co. [1981], supra, 30 Cal.3d [220] at pp. 228–229, 240–243 [178 Cal.Rptr. 343, 636 P.2d 32];  Johansen v. California State Auto Assn. Inter–Ins. Bureau [1975], supra, 15 Cal.3d [9] at pp. 12–14 [123 Cal.Rptr. 288, 538 P.2d 744].)”  (Emphasis added.)

In footnote 43, supra, plaintiff states, in relevant part:  “Technically, the partial assignment in the present case gave Robert [plaintiff] the right to sue State Farm directly for the excess judgment.   Since he and Dr. Turner joined in the same action, this amount was included in Dr. Turner's compensatory damages, instead of in Robert's.   This does not matter, because State Farm is only being required to pay the amount once.”  (Emphasis added.)

Such an argument is indeed remarkable.   To argue, in a multi-plaintiff suit with a special verdict for each plaintiff, that it “does not matter” if the jury awards a million dollars to the wrong plaintiff, is to make a mockery of the judicial system.   Moreover, although plaintiff disingenuously states, in the footnote, that the assignment gave him the right to sue defendant for the excess judgment, he does not then add that the assignment did not give Turner that right.   However, in the earlier quoted portion from plaintiffs' brief on the issue, ante, plaintiffs concede that Turner had assigned his right to recover the $1,000,000 from defendant.   Plaintiffs then state that such assignment means only that Turner will have to pay to plaintiff Blough the $1,000,000 which he will receive from defendant;  and that “This has been recognized as a perfectly proper procedure.”   Plaintiffs go on to defend the “perfectly proper procedure” of an insured assigning to the tort victim the insured's right to recover the excess judgment, in order to “assure[ ] the tort victim that he will be able to collect when the insurance company is made to pay the excess judgment.”

 However, the procedure which is at issue here is not Turner's assignment to plaintiff Blough of his right to recover the $1,000,000 judgment from defendant, which is proper, but the recovery of that $1,000,000 by Turner, and not by plaintiff Blough, which is not proper.   If, as plaintiffs claim, the purpose of the assignment is to assure Blough that he will be able to collect the $1,000,000 when defendant is made to pay it, then that purpose is served by having the $1,000,000 awarded to him and not to Turner.   If the current award of the $1,000,000 were to be affirmed, the only way plaintiff Blough would be absolutely assured of collecting the funds would be to file and then prevail in a suit against Turner.

Samson and Johansen, cited by plaintiffs, supra, are not authority for the “perfectly proper procedure” in the case here.   In Johansen, the assignor had not joined in the assignee's bad faith suit against the insurance company, and in Samson, the assignor had joined in the assignee's bad faith suit, but had claimed damages for emotional distress and attorney's fees only, and had not recovered any part of the assigned judgment.

In any case, if for no other reason than the assignment, Turner was not entitled to recover any part of the $1,000,000 judgment he had stipulated could be entered against him.

 That brings the discussion down to the remaining $750,000 awarded plaintiff Turner, apparently $748,550 for his nine days of emotional distress, and $1,450 for attorney's fees.   Plaintiff Turner's position, whatever it was he assigned to plaintiff Blough, is that he, Turner, yet had a right to recover from defendant the damages he sustained because of his nine days of suffering for emotional distress.

 In the usual third-party case, the measure of damages to the insured for the insurer's breach of the implied covenant in the form of failure to tender policy limits, if they are demanded by the third-party, as already noted, is the amount of the excess judgment finally entered against the insured and in favor of the third-party plaintiff.   However, whatever claim of this kind which Turner may have (theoretically) had was assigned to Blough, the third-party plaintiff.   However, with exposure to the third party later removed because of the covenant not to execute, the relationship between the insured Turner and the insurer State Farm, before the settlement, can be characterized as one analogous to if not exactly the same as that obtaining in a first-party case.

Equating the circumstance here to our earlier discussion of Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032, the policy obligation here was to tender policy limits, and the casualty event to be averted was the nine days of anxiety as testified to by Turner.   As announced in California Shoppers, supra, based on Gruenberg, not every delay in performing a policy obligation immediately on demand amounts to bad faith.   More particularly, the behavior and conduct of the insurer in handling a claim is entitled to scrutiny in terms of a standard which defines tortious behavior as that being without proper cause.

Here, it is wholly without logic to describe what defendant did as having any connection with Turner's nine days of anxiety.   Vis-a-vis Turner, defendant's obligation to tender policy limits was fulfilled on July 19, 1983, well before the nine days began.   Moreover, Sharp's handling of how and when to disclose the progress of settlement negotiations cannot be charged to defendant.   Although defendant was providing the defense, there was yet a separate and independent attorney-client relationship between Turner and Sharp.   Moreover, the prospect of the excess exposure did not evolve because of anything defendant had done without proper cause.   Similarly, as observed in connection with its duties to Blough, arising under the Insurance Code, defendant, as to Turner, had breached no duty to him by reason of the delay in offering policy limits until July 19, 1983.   Thereafter, the prospect of excess exposure was not the result of defendant's conduct but the refusal of plaintiff to dismiss the third-party action, so to enable his counsel to orchestrate the bad-faith scenario against defendant.   In short, defendant breached no duty owed plaintiff Turner as its insured.

 Turning now to pursuit of a further analysis of the propriety of the $750,000 compensatory damages award to plaintiff Turner, but along a different avenue, we pose the question rhetorically of whether it is possible to assert a claim for emotional distress damages quite apart and separate from a bad-faith claim after the bad-faith claim has been assigned by the insured.   Based upon the holding in Purcell v. Colonial Ins. Co. (1971) 20 Cal.App.3d 807, 97 Cal.Rptr. 874, we are persuaded that emotional distress damages, in and of themselves, cannot be recovered in isolation after an assignment of the kind which occurred here.

The result in the case just cited was reached after an earlier case, Reich v. Purcell (1967) 67 Cal.2d 551, 63 Cal.Rptr. 31, 432 P.2d 727, involving one of the same parties, i.e., Purcell, had been decided by the Supreme Court.   Purcell, an insured of Colonial, had tortiously caused a traffic collision in Missouri in which Mrs. Reich and one of the Reich children were killed.   Thereafter, the Reich survivors offered to settle for Colonial's policy limits of $20,000.   Colonial refused.

In the meantime the Reich survivors, who had moved to California from Ohio, filed in California their third-party action against Purcell, who had been and remained a California domiciliary.   Because of the refusal of Colonial to settle, Purcell assigned his so-called bad faith claim against Colonial to the Reich survivors.   The assignment included “any and all causes of action which [Purcell] has or may have, now or in the future, against Colonial with respect to all matters arising out of said accident and the claims incident thereto ․” 9  (Purcell v. Colonial Ins. Co., supra, 20 Cal.App.3d 807, 810, 97 Cal.Rptr. 874, italics deleted.)   Otherwise, Purcell paid the Reich survivors $12,500 in exchange for a full release.   As a further provision of the settlement agreement, the Reich survivors undertook to pursue the assigned bad-faith claim against Colonial and to share equally the excess of any recovery over $20,000 up to $12,500.   There is nothing in the Colonial opinion indicating whether the Reich survivors ever sued Colonial on the assigned bad faith claim.

Yet otherwise, in the third-party action, Purcell stipulated with the Reich survivors that judgment be entered against Purcell for either $25,000 or $55,000, depending on whether the statutory ceiling on wrongful death awards, imposed by Missouri (where the deaths occurred) law, should or should not apply.   The trial court applied Missouri law, and on appeal the Supreme Court reversed, (Reich v. Purcell, supra, 67 Cal.2d 551, 557, 63 Cal.Rptr. 31, 432 P.2d 727) and directed entry of judgment for $55,000 in accordance with the stipulation.

Getting to what is directly pertinent here, notwithstanding the assignment by Purcell to the Reich survivors of Purcell's own bad-faith claim against Colonial, Purcell filed his own action against Colonial, thereby providing the similarity to the case now before us.   The Purcell opinion was filed back in 1971, and so the court was at pains to review Brown v. Guarantee Ins. Co., 155 Cal.App.2d 679, 319 P.2d 69, Comunale v. Traders & General Ins. Co., 50 Cal.2d 654, 328 P.2d 198, Crisci v. Security Ins. Co., supra, 66 Cal.2d 425, 426 P.2d 173, and Fletcher v. Western National Life Ins. Co. (1970) 10 Cal.App.3d 376, 89 Cal.Rptr. 78, to bring into focus the then emergent nature of the cause of action arising by reason of breach by insurers of the implied covenant of good faith and fair dealing, and to conclude that such causes of action are assignable.

In ruling that Purcell had nothing left to assert against Colonial after he had assigned his bad-faith claim to the Reich survivors, the third-party plaintiffs, the court said, “Thus we conclude that plaintiff here was possessed of a single and indivisible cause of action against defendant.   He assigned that cause of action to the Reichs in clear and unequivocal language.   In so doing the plaintiff simply waived any claim for purely personal damages that, relying on Crisci, he might have been able to recover had he brought the action himself.   He could not split the cause of action.”  (Id., 20 Cal.App.3d at p. 814, 97 Cal.Rptr. 874.)

After commenting on the survivorship (after the assignment) issue, the Purcell court concluded, “If plaintiff desired to retain his claim for emotional distress he could very easily have contracted with the Reichs to pay to them all or any part of a judgment that he might recover, a procedure similar to a contingency fee contract between an attorney and his client.   Thus he could have recovered all proper damages without submitting the defendant to a multiplicity of lawsuits such as has been done here.   Plaintiff did not do that, he assigned his cause of action.”  (Id., at p. 814, 97 Cal.Rptr. 874.)   So it is here.

Plaintiffs have undertaken in their brief to distinguish Purcell by arguing that the assignments here were entitled as “PARTIAL.”   They argue further that one of the defects cited in Purcell was cured here by later joining Turner as a plaintiff.   On this latter point they rely on Cain v. State Farm Mut. Auto Ins. Co. (1975) 47 Cal.App.3d 783, 121 Cal.Rptr. 200.

There is a ready answer to plaintiffs' effort to distinguish Purcell.   In Cain the assignment by its terms reserved to the assignor those elements of damage which Turner in his assignment categorically assigned away regardless of the title on the document.   In this connection, the ingenious effort to label the assignment “partial” and to insert qualifying language purporting to limit it to “the judgment entered against me in the amount of $1,000,000” represents outright sophistry.   In the first place, Turner could not possibly have experienced any emotional distress in connection with the stipulated judgment as such because it was part of the entire package which included the covenant not to execute.   Actually, the judgment put an end to his anxiety.   Otherwise, there was no emotional distress experienced by Turner except the nine days of anxiety between the Sharp letter and the settlement.   Thus, there is no way to distinguish that anxiety which was relieved at once by the settlement with Blough and some “other” anxiety.

In sum, there was no emotional distress except that “sustained by me [leading up to] the judgment ․” and so Turner's role here, in light of Purcell, amounted only to that of a pawn in plaintiff Blough's efforts to orchestrate a seamless-web, bad-faith scenario against defendant.   Under the terms of the settlement, Turner was off the hook insofar as any liability to Blough was concerned, and if Blough wanted to bring Turner in later, a la Cain, why not;  what did Turner have to lose?   Only the time it took him to testify about his nine days of anxiety.

Plaintiffs otherwise argue that emotional distress damages cannot be assigned, citing Murphy v. Allstate Ins. Co., 17 Cal.3d 937.   That proposition is of course well settled, but urging it here begs the question.   That question is whether Turner, after having undertaken to assign his entire cause of action, could himself later turn around and assert a claim against defendant, based solely on emotional distress.   Here is where the holding in Purcell is controlling.   To note again certain of the Purcell language, “In so doing [making the assignment] plaintiff simply waived any claim for purely personal damages ․ he might have been able to recover had he brought the action himself.”  (Purcell v. Colonial Ins. Co., supra, 20 Cal.App.3d 807, 814, 97 Cal.Rptr. 874.)

Unraveling what happened at the trial court as to the $750,000 portion of the award to plaintiff Turner, because plaintiffs themselves had alleged the assignment, we hold that it was error to prevent defendant from offering evidence on facts actually pleaded by its adversary.   Otherwise, because defendant's answer had included an affirmative defense that Turner had failed to state a cause of action, it was error for the trial court not to have granted defendant's motion at the outset to dismiss Turner from the trial.   In short, the pleading of the assignment wholly precluded alleging a cause of action for emotional distress.

 Even conceding, for purposes of argument only, that through some artful casting of the settlement scenario plaintiff Turner preserved some right to pursue a claim for emotional distress, it yet obtains, as a matter of law, that Turner's emotional distress was not sufficiently severe to be compensable.   Even if it were, if Turner's emotional distress were sufficiently severe to be compensable, the $748,550 he received in damages therefor ($1,750,000 − $1,000,000 − $1,450 (attorney's fees)) was excessive as a matter of law.   Turner is not entitled to over $83,172 a day ($748,550 ÷ 9) for each of his 9 days of anxiety, and he cannot credibly contend otherwise.   The sole authority cited for the proposition that the $748,550 award was proper is Crisci v. Security Ins. Co., supra, 66 Cal.2d 425, 58 Cal.Rptr. 13, 426 P.2d 173, where the court affirmed a $25,000 award to the insured for damages for a prolonged period of mental suffering, which had included hysteria and suicide attempts, and where “[i]t had not been claimed that ․ the damages awarded were excessive in the light of plaintiff's substantial suffering. ”   (Id., at p. 434, 58 Cal.Rptr. 13, 426 P.2d 173, emphasis added.)   Not one the foregoing features in Crisci is even remotely present in the case here, and plaintiff has offered no other authority or reasoning to support the award here.   As stated by defendant in its reply brief, “simply put, an award of $748,500 is not supported by several sleepless nights.”   More cogently, as observed in this same vein by Justice Kaufman in Merlo v. Standard Life & Acc. Ins. Co. (1976) 59 Cal.App.3d 5, 130 Cal.Rptr. 416, “Nevertheless, ‘ “[w]hen the award as a matter of law appears excessive, or where the recovery is so grossly disproportionate as to rise a presumption that it is the result of passion or prejudice, the duty is then imposed upon the reviewing court to act.” ’  (Cunningham v. Simpson [1969], 1 Cal.3d 301, 308–309 [81 Cal.Rptr. 855, 461 P.2d 39];  accord:  Bertero v. National General Corp. [1974], supra, 13 Cal.3d [43] at p. 64 [118 Cal.Rptr. 184, 529 P.2d 608, 65 A.L.R.3d 878];  Forte v. Nolfi [1972], supra, 25 Cal.App.3d [656] at p. 688 [102 Cal.Rptr. 455].)”  (Id., at p. 17, 130 Cal.Rptr. 416, italics added.)

Recapping the analysis with reference to the $1,750,000 award to plaintiff Turner, in the first instance, he should never have been permitted to participate as a plaintiff in the case.  (Purcell v. Colonial Ins. Co., supra, 20 Cal.App.3d 807, 814, 97 Cal.Rptr. 874.)   Thus, it was error not to grant defendant's motion, at the very outset of the trial, to dismiss plaintiff Turner from the case.

However, even in the mode the case was tried, i.e., with suppression of the assignment, there was no proof that defendant breached any duty to plaintiff Turner arising under the implied covenant.   Neither was it proved that plaintiff suffered any compensable damages with reference to any cause whatever, and that includes the right to any attorney's fees.

III

EXEMPLARY DAMAGES

In the first instance, award of the exemplary damages must be reversed on the authority of Frommoethelydo v. Fire Ins. Exchange (1986) 42 Cal.3d 208, 228 Cal.Rptr. 160, 721 P.2d 41.   In that case, the Supreme Court, relying on Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d 910, 148 Cal.Rptr. 389, 582 P.2d 980, stated, “The award of punitive damages may not be upheld since most of the compensatory damages have been set aside.”  (Id., at p. 220, 228 Cal.Rptr. 160, 721 P.2d 41.)   Such rule, applied to the case here, requires reversal of the exemplary damages awarded even on the assumption that liability for such damages was established.

Such assumption, however, is one which can hardly be made on this record, and such record compels our reference to comments by Justice Kaus in the course of his dissent in White v. Western Title Ins. Co. (1985) 40 Cal.3d 870, 221 Cal.Rptr. 509, 710 P.2d 309.   His comments, which we deem pertinent, read, “In most cases, once the insured has started to litigate, the evidence of bad faith which a stingy offer may permit is submerged by the strategic and tactical maneuvers—the gamesmanship—generated by the suit.”  (Id., at p. 900, 221 Cal.Rptr. 509, 710 P.2d 309.)

Then in a later footnote he observes, “The problem is not so much the theory of the bad faith cases, as its application.   It seems to me that attorneys who handle policy claims against insurance companies are no longer interested in collecting on those claims, but spend their wits and energies trying to maneuver the insurers into committing acts which the insureds can later trot out as evidence of bad faith.”  (Id., fn. 2, at p. 900, 221 Cal.Rptr. 509, 710 P.2d 309.)

 Besides the general pertinence of the foregoing to this case, it provides the occasion to point out that, increasingly plaintiffs' counsel, in their zeal to pursue their efforts as Justice Kaus described, either gloss over or forget the distinction between bad-faith compensatory damages and those recoverable for oppression, fraud or malice.   As Justice Kaus further comments, “I just cannot see every person who breaks a contract subjected to almost unlimited liability for punitive damages.”  (Id., at p. 901, 221 Cal.Rptr. 509, 710 P.2d 309.)   In other words, a breach of the implied covenant does not in and of itself provide the evidentiary predicate for an award of exemplary damages.   There is a three-tiered structure of possible behavior in bad-faith cases.   The first is negligence for which there is no liability.   The second is behavior without proper cause for which there is liability for compensatory damages.   The third is defined by section 3294 of the Civil Code and requires evidence of oppression, fraud or malice in order to award exemplary damages.   Too often it is assumed by counsel, once evidence has established breach of the implied covenant in the form of behavior without proper cause in withholding policy benefits, that exemplary damages flow as a matter of course.   They do not.   As stated in Silberg v. California Life Ins. Co., 11 Cal.3d 452, 113 Cal.Rptr. 711, 521 P.2d 1103, “It does not follow that because plaintiff is entitled to compensatory damages that he is also entitled to exemplary damages.   In order to justify an award of exemplary damages, the defendant must be guilty of oppression, fraud or malice.  (Civ.Code, § 3294.)   He must act with the intent to vex, injure or annoy, or with a conscious disregard of the plaintiff's rights.  (Wolfsen v. Hathaway (1948) 32 Cal.2d 632, 647 et seq. [198 P.2d 1] (overruled on another ground in Flores v. Arroyo (1961) 56 Cal.2d 492, 497 [15 Cal.Rptr. 87, 364 P.2d 263] );  Roth v. Shell Oil Co. (1960) 185 Cal.App.2d 676, 682 [8 Cal.Rptr. 514].)”  (Id., at p. 462, 113 Cal.Rptr. 711, 521 P.2d 1103.)

The foregoing pronouncement of the law is especially significant, for in Silberg an award of compensatory damages for bad faith was upheld, demonstrating that breach of the implied covenant does not in and of itself constitute behavior which is oppressive, fraudulent or malicious.

In any event, these circumstances here present a case one step removed from exposure to exemplary damages.   As already pointed out, as a matter of law, there was no evidence of conduct by defendant which amounted to a breach of the implied covenant.   A fortiori, there could have been no evidence of conduct by defendant sufficient to support an award of exemplary damages.   (Austero v. National Cas. Co., supra, 84 Cal.App.3d 1, 36, 148 Cal.Rptr. 653.)

IV **

THE EXCESS CLAIMS MANUAL

DISPOSITION

In the course of the opinion, we have noted particular errors which in and of themselves would warrant reversal, e.g., the admission into evidence of the Excess Claims Manual, the refusal to allow defendant to place in evidence the facts of the assignment and the covenant not to execute, and certain instructional errors.   These holdings would have provided guidance should there have been another trial, always a possibility in the instance of a straight reversal.   However, the proper disposition of the appeal is controlled by the erroneous refusal to grant the motion for nonsuit as to plaintiff Blough and the refusal to grant the motion in limine that no reference be made to Turner as a plaintiff.

Accordingly, the judgment is reversed with directions.   The trial court is directed to vacate the minute order of March 11, 1986, which denied the motion for nonsuit as to plaintiff Blough, and to enter a new and different order granting the motion.   The trial court is further directed to vacate the minute order of February 20, 1986, which in legal effect denied defendant's motion for judgment on the pleadings as to plaintiff Turner, and to enter a new and different order granting such motion.   Based upon the foregoing, the trial court is finally directed to enter judgment for defendant 11 on all counts of the Second Amended Complaint.   Defendant shall be entitled to recover any costs it has paid on account of the Memorandum of Costs and Disbursements appearing at pages 500–502 of the Clerk's Transcript and, in turn, to file its own Memorandum of Costs and Disbursements and to recover those accordingly.

FOOTNOTES

1.   However, at the trial, this plaintiff did not attempt to prove entitlement to recovery on the assigned claim of the insured.   Actually, he was able to gain a ruling in limine which precluded any reference to the assignment of the bad-faith claim.

2.   Robert Blough's brother Scott, who was also involved as a victim in the collision joined as a plaintiff in the initial complaint.   Scott's case was settled before trial and represents no part of this appeal.

3.   How does a third-party plaintiff “refuse” an offer of policy limits?   Actually, he later accepted the $100,000.   What he “refused” to do on July 19, 1983, was to dismiss the third-party action.   The obvious inference to be drawn here is that the reason for the refusal to dismiss was that plaintiff and his counsel were in the process of orchestrating a bad-faith case against defendant which, in point of fact, was filed only seven weeks later.

4.   At trial, Harrington testified that he “might have been a little more happy had Mr. Sharp communicated with Dr. Turner a little earlier.”   The fact remained, however, that Sharp, on behalf of Turner, had offered the policy limits to plaintiff third party before the personal injury action was scheduled to go to trial and almost a month before the insured stipulated to the $1,000,000 judgment and assigned to plaintiff Blough his, Turner's, bad-faith claim against defendant in consideration for Blough's covenant not to execute, infra.

5.   American Star was the secondary insurer for Las Vegas Auto Leasing, the lessor of the car Tonya Turner had been driving at the time of the collision.   State Farm had also undertaken the defense of Las Vegas Auto Leasing, and, thereafter, had not notified American Star of any proceedings in the case until August 1, 1983, two days before the August 3 settlement conference.   At the time of the collision, Las Vegas Auto Leasing had two liability policies issued by American Star.   One policy was for a $15,000 limit, and the other was for a $500,000 limit.

6.   At trial, Weinberg testified that he had never made any such recommendation to plaintiff.   On direct examination at trial, plaintiff testified, in contradiction of his deposition testimony, that he could not remember if Weinberg had made any such recommendation.

7.   Implicitly this ruling had to have been with reference solely to plaintiff's statutory claims arising by reason of defendant's alleged breach of duty imposed by Section 790.03, subdivision (h) of the Insurance Code and not to plaintiff's claim as assignee of Dr. and Mrs. Turner.   In any event, no proper jury instruction was given on the subject of emotional distress, infra.

8.   The court's minute order recites, when the jurors were polled on the special verdict, that there were nine affirmative responses and three negative responses to each question.

9.   In pertinent part, the assignment here from Turner to Blough reads, “․ any and all sums of money now due or owing to me, and all claims, demands, and cause[s] of action that I have had, now have, or may have against State Farm ․ arising out of, or for, any loss, injury or damage sustained by me in connection with ․ the failure of State Farm ․ to accept reasonable settlement offers within the limits of applicable insurance.”

FOOTNOTE.   See footnote *, ante.

11.   As a consequence, in addition to the $100,000 plaintiff Blough has already received from defendant, representing the policy limits of plaintiff Turner's policy, plaintiff Blough will be entitled to claim $500,000 from American Star Insurance Company under the terms of the sliding scale agreement it entered into with plaintiff Blough on November 30, 1983, as set forth at Clerk's Transcript, pages 106–110.   The trial court, by minute order of January 20, 1984, found that such agreement had been entered into in good faith.

McDANIEL, Associate Justice.

CAMPBELL, P.J., and HEWS, J., concur.

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